Macro Horizons covers the main macroeconomic and policy news events affecting foreign-exchange, fixed income and equity markets around the world, as selected by editors in New York, London and Hong Kong.

WRAP: Markets everywhere were buoyed overnight by the stunning, bold move taken by Turkey’s central bank to hike its benchmark interest rates by more than four percentage points. The decision, which came at midnight Ankara time/5 p.m. EST, even drove up U.S. stock futures. But markets have since eased, with the lira having lost some of the very sharp gains it posted overnight and stock futures pointing to only a modest high. Two reasons: doubts about whether Turkey’s central bank can withstand political pressure from the government and hold the line and, more importantly, uncertainty over what the Fed will say at its 2 p.m. EST announcement upon conclusion of a two-day meeting that is Ben Bernanke’s last as Fed chairman.

The question is whether the Fed will stay entirely focused on the data, which is how it likes to describe itself and which – notwithstanding a disappointing jobs report for December – have been strong enough to suggest that plans to cut bond-buying by a further $10 billion a month can be carried out, or whether market jitters give it pause. The events surrounding Turkey and a few other “fragile five” emerging markets are still mostly viewed as unique to their situations and a far cry from the all-out emerging market contagion problems of the late 1990s. But the extent to which markets everywhere have been increasingly roiled by their problems raises some concern about their stability. At the very least members of the Fed’s Open Market Committee are likely to mention it. (MC)

TURKEY: After spiking last night in response to the Turkish Central Bank’s aggressive emergency rate hike of more than four percentage points, the lira today has given up two-thirds of its gains versus the dollar as investors worry that political pressure from Prime Minister Tayyip Erdogan might undermine the monetary authority’s resolve.

Turkey is in trouble. The central bank strode in with a massive tightening overnight. The benchmark one-week lending rate for banks rose to 10% from 4.5% as the central bank sought to defend the lira. And the lira rallied sharply. But when European markets opened, it started selling off again. Investors are right to wonder how durable those hikes are likely to be in light of the government’s opposition to the move and the fact that it is bound to do significant damage to growth prospects if maintained. (AM)

ASIA: Asian markets were buoyed Wednesday by the Turkish central bank’s shock decision to raise interest rates far beyond expectations overnight to head off a crisis in the lira currency. Stocks and currencies across Asia jumped in response when trading opened Wednesday.

By and large, though, this crisis has not been Asia’s affair – a stark contrast to the taper selloff last summer that hit emerging Asia disproportionately hard. That’s a result of the steps Asian countries took after the taper selloff to correct their economic imbalances, at the cost of sharply lower growth. There’s no guarantee that Asia won’t suffer in future EM crises, but for now, it seems the tough medicine that the most vulnerable countries in Asia took last year has helped set them apart from their EM peers elsewhere. (MA)

GERMANY: February GfK AG forward-looking consumer climate survey was 8.2 against expectations of 7.6 and up from 7.7 in January.

German consumer confidence registered its most bullish reading since August 2007 as the euro crisis fades. So far the real data haven’t quite kept up with German sentiment indicators, but economists figure annualized GDP should come in at around 3% this quarter from the paltry 0.4% expansion during the whole of 2013. This should bode well for a pick-up in consumer demand. The German economy is still too heavily tilted towards exports and, consequently, massive current account surpluses. (AM)

British house prices continue to race ahead of the pace of economic growth and household earnings. With valuation metrics already eye-wateringly high, something will have to give. Either inflation and nominal growth will have to pick up, or prices will have to fall. The Bank of England is banking on being able to steer a safe course. (AM)

EURO ZONE: December M3 money supply up 1.0% on the year against expectations of a 1.7% rise.

For all the signs that the euro zone is recovering from its crisis, the money supply indicator is still flashing a big warning light. M3 money barely grew in the year to December, increasing concerns about a lack of credit flowing to member economies and boosting the risks that the single currency region will sink into outright deflation. There is increasing talk that the European Central Bank will take additional measures to ease liquidity, possibly through something like the Bank of England’s Funding for Lending Scheme where banks get subsidized finance if they pass the lending on. (AM)

MALAYSIA: Malaysia’s central bank held interest rates steady at 3.0%

The decision was as expected, but Bank Negara Malaysia is seen as a potentially early mover in Asia as growth has remained fairly steady and inflation is creeping up. Steps that authorities took after last summer’s taper selloff – such as slashing subsidies and staggering capital-intensive imports to keep the trade balance positive – have taken a bite out of demand, but have helped reassure global investors. For now, the government is happy to be out of the global headlines. (MA)

With the rand trading near five-year lows and proving to be one of the hardest hit in this year’s mini emerging market crisis, there is enormous pressure on South Africa’s central bank right now – especially after Turkey’s aggressive move on Tuesday night. After that announcement traders bought lira but sold rand, a signal that they don’t trust the South African central bank to be similarly aggressive. The local economy is in a very weak state — and will hardly be strengthened by tighter monetary policy — but if the central bank refuses to hike rates it could send the rand into an ever deeper downward tailspin, turning a mounting currency crisis into an all-out debt crisis for South African firms and agencies that have borrowed in foreign currency. (MC)

A strict letter-of-the-law reading of the Fed’s persistent reminders that its plans for tapering its bond-buying program is “data-dependent” might argue for a halt in the steady reduction in its monthly purchases that it outlined at its last meeting now that we’ve since seen a much weaker-than-expected December jobs report. Add to that the fact that markets have been roiled by the selloff in emerging markets and there’s a possibility that the Fed could sit on its hands today. However, various officials from the Fed have dropped hints that the anticipated $10 billion reduction to a monthly target of $65 billion — following last month’s decision to cut buying from $75 billion from $85 billion — would most likely go ahead as planned. Backing that up: most other December and January indicators have been robust, suggesting that the jobs report from the Bureau of Labor Statistics was an outlier. It’s also Ben Bernanke’s last meeting before he hands the chairman’s reins to Janet Yellen. They’ll probably want to show a commitment toward predictable, steady-as-she-goes policymaking. (MC)

Greece’s finances are in better shape, but it is far from out of the woods and, by most accounting analysis, will be unable to meet its future obligations under the limited terms of its current bailout agreement with the troika. Part of that is the EU’s fault, as it has impeded the government’s capacity to make certain asset sales under a mandated privatization program designed to bring in badly needed cash. But Greece’s own political divisions and the entrenched opposition of unions and other interested parties to some key reforms has also slowed things down. That said, the easing of pressures in the rest of the euro zone should raise the chances for both sides to eventually meet an agreement — if not during this latest round of talks. And with any luck it would be the last expansion of bailout terms that Greece will have to negotiate as its economy is forecast to return to growth this year after a massive retrenchment in national income levels. (MC)

New Zealand’s fourth-quarter inflation was stronger than expected at 1.6% on year, moving it closer to the 2% level that the central bank targets. As inflation is expected to pick up further as growth accelerates, the RBNZ is likely to be more confident about raising borrowing costs to cool the roaring housing market, without causing a drop in prices that could damp the economy. The median from a Wall Street Journal poll of 13 economists sees a 35% chance that the cash rate will be increased from 2.5%. While bets on a rate rise are increasing, most economists still believe a March hike is more likely. (CN)

There’s unlikely to be much reaction to the final reading of HSBC’s indicator unless there is a major shift from the preliminary result. With the flash reading slipping to its lowest level in six months at 49.6 from December’s 50.5 — indicating a contraction in manufacturing — most of the market reaction has already taken place. Still, given how negative the fallout was around the world, there’s possibly some wellspring of hope out there that an upward revision could generate a rebound in risky assets and currencies that are dependent on continued growth in the world’s second-largest economy. (CN)

The Philippines remains one of the Asia’s fastest growing economies, showing a very respectable 7% expansion in the third quarter. Fourth quarter growth is likely to be hurt by Typhoon Haiyan, which hit in November, killing thousands and inflicting hundreds of millions of dollars of damage on the farm sector. Still, the economy should have enough momentum to exceed the government’s target of 6-7% growth for the year, and reconstruction efforts after the disaster will likely aid growth in 2014. (CN)